Action Construction Ltd
Highlights of Q3 FY18 Concall
Financial Performance
- Q3FY18
o Sales increase by 48 % to Rs 279 Cr compare to last year same quarter
o PBT increase by 264 % to Rs 22.4 Cr compare to last year same quarter
o PAT increase by 236 % to Rs 16.41 Cr compare to last year same quarter - Key Highlights
o Cranes business increase by around 70 % on YOY basis
o In Construction equipment business road machinery business increase by about 57 %
o In material handling segment , forklift business increase by 46 % and 3 % increase by agri side
Q&A
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Is there a change in mix of business ? What kind of order backlog will be there which will give growth in FY19 ?
o Company is going to increase profitability and profit percentages . In current quarter there is some pressure because of steel prices but company will able to handle it because in February company is going to increase prices of products.
o Company is looking for a 50 % growth in order compare to October , November and December. Currently company is coping up with manufacturing side to immediate ramp up the production plans. -
Is the current growth is sustainable on yearly basis ?
o Yes , company will is expecting atleast growth will be sustainable as it is in Q4. 60-70 % of company revenue is indirectly connected to infra sector . balance is connected to hardcore industry and manufacturing and company is seeing a big revival in that . -
Why is the agri equipment growth so soft and what is the progress company have made in backhoe loader segment?
o In the agri side company is planning to grow 15-20 % in current year. In last quarter company had done 57 % increase in top line on a YOY basis with respect to backhoe loader. Company will able to grow 70-80 % in seeding machines throughout the country which has been happening in the last one and a half year on a continued basis, including company board machinery -
With every addition of 5 % in utilisation , How much could it affect top line and bottom line ?
o 5% increase in utilization would be approximately Rs. 70- 75 crores of revenue.
o In construction equipment and forklift and agri company utilisation will increase more than 10 %
o Company have enough capacity to overall reach the turnover of around Rs. 1,500 crores - Rs. 1,600 crores. For about every 100 Cr increase un revenue will increase PBT about 15-16 % that is about 15-16 Cr -
What is the current capacity utilization ?
o In cranes it is 60 % utilization , Construction equipment is at 30 % utilization, Material handling is at 50 % utilization and Agri is at 50 % utilization. Company have capacity to get double from current level. but yes doing a Rs. 1500 crores - Rs. 1600 crores revenue out of this existing capacity in the next year should be very easy -
Does company looking at capacity utilisation increase at the rate of 10% in all areas?
o No , company is looking at slightly higher than that . Because in Q4 company is looking at a 40-50 % growth on YOY basis . Going forward in next year also company is looking at a 25-30 % growth. So company will be utilising 60-70 % of capacities -
What were the volumes in the quarter ?
o For pick and carry company had done 1216 units, for mobile tower cranes and tower cranes put together company had done about 64 units, for tractors company had done about 1024 units and for forklifts company had done 215 units -
How is now company presence in terms of markets ?
o Company presence is predominantly in Haryana , UP and some other parts of North India. But in the last one and half year company had increase its distribution focus in the eastern, southern and western parts of the country. Apart from that company had also developed bigger horsepower tractor, 75 horsepower and 90 horsepower tractor especially for the export market. Company had put a export division in place six months back . So in the next year company will be exporting these bigger horsepower tractors especially to Africa in reasonable numbers. -
How will the tie up with PNB for selling farm equipment looks like?
o It was done to increase sales number of tractors and harvesters because 90% - 95% of agri machinery is sold on credit and PNB being one of the leading banks and available more or less in every nook and corner of the country. So this a big shot to increase tractor sales in times to come.
o In coming days, company will be a part of TMA , Tractors Manufactures Association of India. All the leading finance companies, especially the private companies mainly are focused towards TMA members with respect to funding of agri machinery. So going forward, even the private financers are supposed to handhold us with respect to the credit they offer in the market for financing. This should really help company in increasing numbers next year. -
How much growth company is seeing in different sectors and what is the focus on budget outlook over the next coming years?
o In Q4 company is looking for a growth of 40 % on YOY basis. After that for the next year again doing a 25% to 30% growth should not be a problem because company had projected 18-20 % growth in FY18 but now company itself has grown 40 % . So realistically 25% to 30% should be easily done. With respect to budget company is hopeful because infrastructure , industrial activity and agricultural are the three main focus which as of now the Finance Ministry has and luckily company is working of all of these three domains -
Is the growth is across whole industry or just in the company ?
o With respect to cranes company is growing faster then competition . In backhoe loaders or forklifts whole industry is growing because things are back on track . More or less other companies are growing in similar numbers -
What will be the peak margins at peak utilisation level ?
o On EBITDA it can be 10-13 % or may be slightly more . PBT above 10 % . Tax rate currently it around 25%, so let’s say 13% odd plus/minus at EBITDA level. Little more than 10% on PBT level and somewhere around 7.5% - 8% on PAT level -
What is the company market share in various segments ?
o In cranes it is close to 64 % and it has gone up by 2-3 % in the last quarter.
o In Material Handling company would be close to 20 % market share .
o In construction equipment and agri equipment company market share is miniscule -
Does company have any additional manpower and sources of production which will aid this growth so does company ramped up on those aspects ?
o Yes company is pre-planning with respect to whatever need to done . Company at it own end is well equipped to cater the increase in demand . The second side is supplier base . In the last two month company have already started working out alternate plans where company can use capacities with somebody else who are not supplying to company . -
Is there any CAPEX plan for FY20 ?
o From current land bank company is only using 30-40 % of total so land is readily available with company -
Why company is able to gain market share compare to competitors ?
o Company sell good cranes at the right price, backed by even better warranty and service support. This is the simple strategy . -
Why promotor has sold stake in current quarter ?
o In November promotor family sold around 50 lakh shares. Many marquee and big global investors were continuously in touch with company and they wanted to be a part of company or part of a growth story. But somehow it was difficult because of liquidity in the market is quite restricted . So promotors decided to give away a small portion . From 73% promoter holding went down to 69%. -
What is the lead time that company take from getting the order and the same getting reflected in the results?
o Company have four segments and company biggest segment is Cranes . Company continuously producing Cranes and company have a in-house order tracking system where company know the number of fresh orders which are coming in a day and what needs to be produced. So company is working on a 12 day cycle from order to delivery .
o Company had recently hired a consultant to further work on supply chain to further de-stress it and make it even better so that delivery lead time get reduce. In next 3-4 month company will further debottlenecking respect to supply chain. -
Give some brief on the long term debt that has increased from Rs 30 Cr to Rs 83 Cr and also on increase of short term borrowing by Rs 56 Cr ?
o Company have been using working capital and CC limit which take from bank . Even company utilisation was not in sync with it , because company earlier CAPEX which company had done in 2011-12 , 2012-13 was from working capital only. So to balance right company had taken 25 Cr of loan from Kotak . With respect to inventory, debtors and creditors company will reach at level of 80 Cr and 85 Cr with respect to total debt , including long term and short term.
o So it is basically a shift from short term loan to long term loan -
Kindly give YOY comparison in terms of capacity utilization for the agricultural segment?
o It is similar as of now because the growth that company has shown in the last quarter in only about 3 % more as compared to FY17. And company is working at about 50 % with respect to agri -
Is there was no price hikes given the steel price movements?
o No , company is pushing price as of now . In month of august company were pushing price increase of about 2.5 to 3 %. Specifically in January, steel prices along with other commodity prices have increased drastically. So from February onwards company intend to push in a price hike of around 3% - 3.5% which will take shape only by March and April. But in the meantime a lot of material is in pipeline, so generally company will be able to drag price increase with respect to incoming material as well as finished goods -
How much of revenue or it is completely driven by incremental unit sales as opposed to any revenue from the source of leasing or servicing?
o Most of it would be from sale of new units . Company have its rental and leasing business which has practically not grown further in the last 12 months owning to the overall market scenario. But yes, going forward the rental business is going to increase and going to increase quite a lot. It is just that in a tight market scenario company don’t want to increase its rental business in hands of bad pay masters because even the biggest of companies have been really bad pay masters in the last one or two years. So that was primarily the reason. But yes, going forward company is much focused and company rental business will increase 6-7 times in the next one or two years -
Given the lowering of interest rates by RBI, does company had thought about refinancing at a more optimal cost of capital or even raising capital through some transfigurative issues?
o Company interest cost is close to about Rs 13.6 Cr last year and hopefully company will be finish at something similar . Company is enjoying one of the best rates available in the market with respect to financing cost . -
What will be the maintenance CAPEX YOY ?
o 8-10 Cr -
How much is the rental business currently ?
o Company had done 15 Cr in first 9 months . In last year company had about 18 Cr . In this year it will be around 20 Cr . But it will increase 6-7 times in next couple of years -
If there any interest from FII to have stake in company ?
o Yes there has been a lot of interest in last 6-9 months . Some of them are really good and marquees investors from India and abroad. Bringing down promoter stake from73% to 69% was a very big decision. Promoters will not reduce stake further -
Which are the end sectors which are driving this cranes growth ?
o For the cranes segment about 60% of our growth is broadly with respect to infra and construction activity and 40% is hardcore manufacturing, industry & engineering sectors. Primarily the demand for cranes as of now in the infra sector is being driven by railways, metro, urban infra or the highway jobs, and refineries . With respect to industrial activity across all sub segments Steel is the biggest consumer for cranes, so obviously steel is taking the lead in the industrial side because more the movement of steel happens, obviously more cranes needed to move them , lift them, shift them, load them, unload them, and place them.
o About 8-10 % of company crane portfolio also consists of housing and civil structures and real-estate where company supply tower cranes which has been reasonably slow in 2013, 2014, 2015, 2016 and even in 2017. But definitely in the last four five months of 2017 and going forward company is seeing good attraction even in the tower crane segment which is primarily for civil construction. Leaving out NCR, Delhi, Gurgaon, Noida and Faridabad, all other major cities are already seeing a revival in demand with respect to tower cranes for building construction . NCR will also catch up. But the biggest traction is coming from this so called low cost housing activity in Gujarat and Madhya Pradesh -
Does company will introduce new models in the in the construction equipment segment? Does company products are comparable with the market leaders in terms of range or company is likely to expand further ?
o With respect to construction equipment company have backhoe loaders and three to four different types of vibratory rollers which are used for road construction, whether it is soil or whether it is asphalt. Going forward with respect to motor grader company is going to add a model which is a slightly smaller model for the rural roads or the hilly roads where there is a need of smaller machine. In month of march company would be launching new models of backhoe loader , which will further upgraded with better aesthetics and certain specification feature which might be better than competition as well. With this company will have a sizeable market share in backhoe loader market. Company is also thinking on track excavator segment wherein companies like Hyundai, Hitachi, Kobelco or Komatsu are currently present -
Will this construction equipment margins or the profitability of this product will be on par with cranes or will be slightly above ?
o It will be similar in respect of profitability , company have improved in terms of construction equipment segment as compared to last year. -
Is the demand in cranes seen across India or it is from some specific regions?
o Demand if across the country . For the first time demand has been seen in Jammu and Kashmir and north region -
Metal prices have increased in the recent past. Secondly, for the end user, crude price is important part of his overall cost structure, which has also increased. Does company is completely inelastic to these kinds of pressures which may happen for the end user to buy equipment
o Generally the increase in prices will be in term of 3-5 %. Company do a soft release of prices into the market and generally it is done into two steps. There can be a lag sometime of one or two months where company is trying to push the price . but there is no reason to worry because once the demand is high, price increase should not be difficult. It is generally when the demand is on the weaker side, pushing price increase is more difficult. -
Management Comments
o “Going forward company is looking at 25 % growth with about anywhere between 11% to 13% EBITDA levels and with a 9% - 10% PBT levels looks achievable. Company is working hard in that direction and trying to control company in all the right senses whether it is working capital, our inventory, creditors or debtors or product portfolio , product line and infrastructure in the market to support equipment. “
